Economic Policy: What Has Changed in 25 Years?

WSJ’s Jerry Seib and David Wessel take a look at the past 25 years in economic policy and what may come in the near future.

This transcript has been automatically generated and may not be 100% accurate.

the ... Jerry Sithe ... Wall Street are ... joined today by my colleague longtime colleague David Wessel who sadly for all of us of the last return was leaving to ... run the Texas Center for fiscal and monetary policy at Brookings and you think this is can be treated as the spirit happily for us will still be associated with one another to my right for us ... up but it seemed like a good time to stop and look back on me The within a quarter century for you ... of covering economic policy in Washington ... a lot has changed I was thinking today about ... some the things of that change was no internet when this period started ... out the twirl of Morey by inflation then deflation ... aam in the idea that the U S could become energy independent body with them laughed off stage if you talk about that twenty five years that's a lot of change what surprised you the most uncovering economic policies the last quarter ... I think that that I'd take an election in nineteen eighty seven Ronald Reagan was president ... and ... we've worked many fewer hours because in and it didn't require us to work twenty four seven and the idea that we'd be doing video at the Wall Street Journal I mean we did the right pictures ... on ... one thing that struck me those those reflecting on this is that the American middle class ... has done so pouring ... in that period that is you may remember ... our colleague Bob Davis and I wrote a book in the late nineties in which we were very optimistic about the American middle class ... seemed us that the potential of ... computer technology the benefits of globalization ... with lists ... of the economy ... and we expected the inequality in the US to begin to narrow ... that somehow more people would go to college and there would be ... that would narrow the gap between winners and losers ... and that really hasn't happened ... the census tells us that since I came to Washington ... the income in money ... before taxes ... the typical family has only gone up four percent adjusted for inflation since nineteen eighty seven ... now if you factor in changes in family size and government benefits and stuff ... the Congressional Budget Office tells us it's gone up quite a bit more than that ... but still it's been a disappointing twenty five years ... for tickle e since the late nineties for the American ... Hustle why what's with that I'm sure there many explanations were the most important ones I think no one is that the average rate of growth in the US is been disappointing ... in the nineties that look like we're on the cusp of a big boom in active ... four percent growth the rare things like ... and the second thing is that growth that we have had ... has disproportionally gone to the top tier of Americans ... some two people with the most education ... a lot to people and finance ... I and so ... the the goodies have not been evenly divided ... so to the extent that we have had growth and we have since nineteen eighty seven ... that prosperity is not likely it seems for a layman's point of view that the advance the March of technology is actually exacerbated the problem rather than racket that prompts a summit in Hess ... basically it's very hard to make a decent wage working with your muscles ... much more requires working with computers ... if you go to a factory today ... they have as much computer power either fingerprint fingertips ... as a software programmer did quarter century ago ... I think it is important I know I'm not of the school that says the life is worse than it was nineteen eighty seven ... I mean ... the typical American family has much cheaper technology they have ... most likely the broadband in their homes are likely to have cell phone so they get in touch with their kids at all times ... which you know our parents could well be re did say that and and and you know the the greatest cure ... AIDS are ... avoiding heart disease or to other diseases so though lots of non monetary things that matter ... but ... the actual increase in incomes has not been great ... I also recall nineteen eighty seven as being of that period in which the Japanese were going in their lunch ... but didn't quite happen what was wrong there for that to rise well it's a blessing because we always seem to have some country that we're afraid of ... and you're ready Japan was gonna make everything and we were going to be basically stopped in Corning's May Japan and they basically ... screwed up ... it turns out that the Japanese are not very good innovators they know how to make things very efficiently but the whole ... software revolution the development of all that incredible with stuff ... that hasn't been their strong suit ... plus their society turns out to be very rich ... too rigid for the modern economy the embrace very brittle ... aam ... but what's replacing courses China ... so if you and I had been sitting here in nineteen eighty seven ... it would have been unthinkable that China was gonna have ... three decades of ten percent growth every year ... I recently saw a picture of Shanghai circa nineteen eighty five ... any it looks like I'm ... you know as a caricature of Hoboken New Jersey without the skyscrapers I mean ... it's just like ... a lot of low warehouses buildings with a couple of nice buildings that were built in the twenties ... and if you look at it now it looks almost like a futuristic world's fair of all these spiders with ... neon lights and stuff ... it's a remarkable transformation in China in a remarkable ... period of time remarkably short career capsule in in its unimpressive ... and in what we know by human history that any society has lifted so many people ... now they have ... the same problems and we talk about inequality in United States ... in my eye and travel in China very much but the ... the glaring ... gap between ... migrant workers in Shanghai to live in tenements that much bigger than this it's this studio ... and people live in May and Dollar condos and ride Mercedes and BMW is striking ... and I think it will hurt them unless they can ... Mr. one final question about the domestic economy and use the one time in the last twenty five years reading about the Fed ... said as institution what the Fed does ... does the Fed become a more important part of the American economy in the last quarter century yes ... we used to think that the Fed had a very simple job ... to move the lever up interest rates a little bit ... and especially after Paul Volcker when they get inflation down ... it seemed like I just tiny course corrections would make it work ... and we get a real taste of ... how successful the state could be a nineteen eighty seven we had the stock market crash in ... Queensland flooded with the economy with money and get passed ... and then we had the stock market bubble of high tech bubble and early to thousands ... same thing Greenspan managed to steer around that ... nine eleven they did whatever it took to keep the markets functioning ... and so it seemed like they were ... almost an autopilot ... and then while comes that ... the global financial crisis and suddenly the Fed is the only game in town ... so I think the Fed has become much more important is an instrument of economic policy ... because we now know that ... they have to ward off depression which we thought was ancient history ... because they're very agile in a political system which is anything but until ... then because they've been given under the Dodd Frank law and other things ... a lot of responsibility for financial stability to prevent the next crisis ... which is the much more power than they ... did the rest of the political system work better with that be less necessary in other words if the people who ... make decisions about fiscal policy Congress did their jobs better and more efficiently with the Fed be less important or is it ... in other words is in by default that the Fed has become this and I'm ... that mindset is yes and no ... you you can have a political system that is the only regulator of the banking system is also going to have global banks ... and will to learn that banks like Lehman ... and Bear Stearns ... and Merrill Lynch which was previously covered by the safety net gonna have to be ... covered the Fed is gonna have to import role ... but in the monetary spouses Center sing all the buying of bonds and interest rates ... absolutely the Fed is compensating for really counterproductive ... budget ... policy and ... has a lot of burden on them and they're criticize Foreign ... and some people think they should of done it ... Ben burn Anqi the chairman says my job is to do the best I can for the economy ... in the light of the stupid things ... as you get to this point view of an optimist or pessimist ... I'm very ... worried about the near term ... I think the next few years about to be very rocky ... but you know sometimes I speak to audiences of people who read my books are ... Wall Street Journal audiences and ... at the end I always find myself worried and I left them with the impression that I'm pessimistic ... about the long run future the United States and I ... usually end by saying that ... you and I have kids in our twenties ... and is really really hard to be pessimistic in America when you meet ... our kids upper middle class college educated kids and their peers ... that they don't seem to have gotten the message that ... were declining society ... they're just getting on with it ... and ... I think that's our best hope it sounds kind of ... mushy ... but you know ... people are intending software out there in Silicom Valley ... then I don't understand that I know will change lies in the decade ... and there's no other country in the world has that come out ... we'll try can also Hutchison a good luck there ... continue to read David Wessel ... won the beest dot com even after January first this is Jerry side ...